A dynamic dual model under state-contingent production uncertainty

Asset fixity of inputs is tested under state-contingent production uncertainty. We construct a general dynamic dual model for U.S. agriculture that allows tests for full variability and strict fixity to be performed for each input as well as tests for functional form. We estimate the model using a generalized Box-Cox functional form. Most test results are robust to functional form, but test results of fixity are sensitive for two of four inputs. The generalized Leontief is found to be significantly preferred to the translog and normalized quadratic functional forms for the dynamic model. With this functional form, family labor exhibits strict fixity, while land, capital, and hired labor exhibit quasi-fixity. Production uncertainty has limited impacts on investment decisions for quasi-fixed inputs.

Section: Asset Fixity Testssupporting

confidence: 90%

Asset fixity under state-contingent production uncertainty

Yang

Shumway

2018

“…Whereas, on the one hand, the theory of state-contingent production is now well established, on the other hand, empirical implementation of the state-contingent approach is still in its infancy. The most notable applications to efficiency analysis are O' Donnell and Griffiths (2006), O'Donnell, Chambers and Quiggin (2010), Chavas (2008), and more recently Serra et al (2010). O' Donnell and Griffiths (2006) have used a Bayesian approach to estimate an output-cubical state-contingent production frontier for rice farmers from the Philippines.…”

Section: Introductionmentioning

confidence: 99%

“…Indeed, the part of the deviation from the frontier that was due to risk was misinterpreted as inefficiency in the conventional stochastic frontier model. Chavas (2008) and Serra et al (2010) estimate a state-contingent cost function using aggregated data from the United States (1949States ( -1999. The results generated using this data provide empirical support for an output-cubical technology.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Uncertainty and technical efficiency in Finnish agriculture: a state-contingent approach

Nauges¹,

O’Donnell²,

Quiggin³

2011

In this article, we present one of the first real-world empirical applications of state-contingent production theory. Our state-contingent behavioral model allows us to analyze production under both inefficiency and uncertainty without regard to the nature of producer risk preferences. Using farm data for Finland, we estimate a flexible production model that permits substitutability between state-contingent outputs. We test empirically, and reject, an assumption that has been implicit in almost all efficiency studies conducted in the last three decades, namely that the production technology is output-cubical, i.e., that outputs are not substitutable between states of nature.

“…2 The use of aggregate data in agricultural economics is common. Related examples include Ball, 1985;Ball et al, 1997;Behrens and Haen, 1980;Binswanger, 1974aBinswanger, , 1974bBoyle and O'Neill, 1990;Chavas, 2008;Jorgenson and Gollop, 1992;Sckokai and Moro, 1996;and Serra et al, 2010. This paper presents a model of and an empirical application to a balanced panel of U.S. statelevel annual agricultural input use for the time period 1960-1999. The paper applies a relatively new approach to production modeling (LaFrance and .…”

mentioning

confidence: 99%

Modelling an aggregate agricultural panel with application to US farm input demands

Tack¹,

Pope²,

LaFrance³

et al. 2014

A recent class of factor demand models is discussed and used to analyze U.S. state-level production data. The approach accommodates output risk, heterogeneous technologies, technological change, endogenous variables, aggregation across agents, and more general flexible functional forms than previous models. We find the approach to flexibility found in the consumer literature empirically useful in the analysis of producer behavior as our results suggest that standard flexible models that have been ubiquitous in agricultural and industrial research are strongly rejected here in favor of a more general and flexible specification. Further, there is substantial heterogeneity of conditional own-price elasticities across states.